Crunching the numbers that can help lift economies


The unprecedented Covid-19 outbreak has for the past weeks been featuring in practically all news items – from the medical aspect to the financial downturn in markets alike. Reporting has also been made of the numbers that can help lift economies, that is, the fiscal stimuli being provided by different governments in order to assist the respective economies.

As the pandemic’s epicentre shifted from China to mainland Europe and the US, it was now the turn of the newly affected countries to implement measures that help sustain the market community in these extraordinary circumstances. With interest rates at record lows in the Euro zone, and given the nature of such crisis, fiscal policy measures were brought to light more than ever before. Similarly, the UK and US, albeit having limited monetary policy manoeuvring, still reverted to fiscal measures to try and soften the negative impact incurred by businesses and the local workforce.

The following table quantifies the measures announced by the various countries including Malta and also illustrates these as a percentage of Gross Domestic Product (GDP). A stark difference in the fiscal package as a % of GDP can be noted if bank guarantees are removed from the equation.



CountryFiscal Stimulus Package (A)          (in billions)Fiscal Stimulus Package excluding credit and bank guarantees (B)*  (in billions)GDP          (in billions)Fiscal Package as a % of GDP

   A                      B


GDP figures In USD were extracted from and converted into the respective currencies using the 31 Dec 2019 exchange rate.

**The Fiscal Stimulus Package for the UK omits bank guarantees which are otherwise included in all other similar packages. The UK has not stipulated a limit for bank guarantees and therefore this could not be included.*Fiscal Stimulus Package B includes deferred tax paymentsGDP figures In USD were extracted from and converted into the respective currencies using the 31 Dec 2019 exchange rate.***The Fiscal Stimulus Package for Italy includes bank guarantees, as these were not quantified separately.

Fiscal measures introduced by these countries are a combination of state loans or credit guarantees for companies, tax deferrals, debt repayment holidays and direct cash injections among others. While all measures help, there are certain measures that have a direct and immediate impact as opposed to others. A measure which has been announced by all these governments but that does not have an immediate impact is that of bank guarantees. The latter act more of a safeguard and provide a form of flexibility to corporates in times when liquidity is key. It also helps improve investor confidence despite the bleak outlook.

Media reports in which the various fiscal stimuli packages were compared, sometimes caused confusion due to the fact that these were not comparing like with like.

As reported by the Financial Times on March 30, countries like Hong Kong have opted to focus more on providing citizens with disposable income. As a matter of fact, the government has decided to pay HK$10,000 (c. €1,200) to every citizen. In Europe, however, few economists think this is the right moment for a big fiscal stimulus especially since many EU states are in lockdown and therefore millions of people are unable to go out and spend. Eurozone finance ministers said they had agreed crisis-fighting fiscal measures worth 2 per cent of GDP, on average, for 2020 to support the economy, plus liquidity facilities of at least 13 per cent of GDP with the latter consisting of public guarantee schemes and deferred tax payments.

In normal day to day issues, let alone in such unprecedented circumstances, it is difficult to have a one policy fits all approach. This has in fact always been the Achilles heel of an institution such as the European Union (EU) which in turn hindered the Union from reacting in a timely manner to arising situations. Some observers compared this situation to that of the financial crisis which hit the world over 12 years ago. At the time, the EU reacted quicker and seemed more forthcoming with countries in major distress. In my modest opinion this is also understandable as all countries are impacted hugely by this pandemic, thus, making it more difficult for resources to be redistributed among different countries. As a matter of fact, we have witnessed countries like China, Russia and Cuba providing Italy with medical assistance as opposed to fellow countries in the bloc. From a monetary policy point of view, having a singular front, enabled the European Central Bank (ECB) to announce on March 18 that it would spend €750 billion in bond purchases to calm down sovereign debt markets. The latter is referred to as the Pandemic Emergency Purchase Programme and will last until the end of the year.

The rest of the world is also at the mercy of Covid-19 and its impact on the global economy. It is clearer than ever that all countries are in this together and a cohesive global strategy is required to limit the damage as much as possible. Albert Gallo, Partner at Algebris Investments in London, together with other colleagues who form part of the ad hoc working group on GDP-linked bonds, believe that even if the proposed government policies leave the desired positive effects, one must not forget the impending debt crisis arising from all this.

The authors of this article, titled ‘Letter: The moment has arrived for the GDP-linked bond’ published on the Financial Times on March 31, believe that governments should consider embracing the risk-sharing principle at the heart of GDP-linked bonds and make this their main borrowing instrument. They believe that by switching existing debt into GDP-linked debt they will be ensuring that sufficient cash flow relief is provided in the first instance. It is also imperative that financial market stakeholders support these instruments by making them marketable, by developing pricing models and allowing for their inclusion in existing indices. They concluded their article by stating that the time has come to put these concepts into practice. The existence of such debt instruments would provide the necessary fiscal space required in times like these while reassuring creditors that post-crisis, their investments would recover. There are however contrasting views, primarily in the EU, in relation to this issue.

Perhaps the time is not yet ripe to think about a recovery. The aviation industry, and therefore other tourism related sectors such as leisure and entertainment, are currently at a standstill and will most probably remain so for the days and weeks to come. Maybe countries with strong domestic demand can be more hopeful of a quick recovery when all this is over, but what this pandemic has surely thought the world is that nothing can be taken for granted and the future outlook can change as the situation unfolds.


David Baldacchino, MSc Wealth Management (Edinburgh), B.Com (Hons) Banking and Finance (Melit.), DipFA, is an Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]